Langley Clinics, Inc. buys $400,000 in medical supplies a year (at gross prices) from its major supplier, Consolidated Services, which offers Langley terms of 2.5/10, net 45. Currently, Langley is paying the supplier the full amount due on Day 45, but it is considering taking the discount, paying on Day 10, and replacing the trade credit with a bank loan that has a 10 percent annual cost.

a. What is the amount of free trade credit that Langley obtains from Consolidated Services? (Assume 360 days per year throughout this problem.)

b. What is the amount of costly trade credit?

c. What is the approximate annual PERCENT cost of the costly trade credit? Note: Format is xx.x%

d. Assuming Langley can obtain a bank loan for 15%, should the firm replace its costly trade credit with the bank loan? Note: Format is Yes or No

e. Should Langley replace ALL of its trade credit with the bank loan? Note: Format is Yes or No